Jabong's loss shrinks in 2015 as it goes easy on discounts

Jabong’s loss shrank to about a third in 2015 from a year earlier after a clampdown on discounts, which also slowed sales growth to 7%.Sagar Malviya | ET Bureau | April 14, 2016, 20:25 IST

Lifestyle product online retailer Jabong’s loss shrank to about a third in 2015 from a year earlier after a clampdown on discounts, which also slowed sales growth to 7%.

The fashion retailer posted a gross loss of Rs 46.7 crore on revenue of Rs 869.1 crore, parent company Rocket Internet said. A year ago, it made a loss of Rs 159.5 crore as sales more than doubled to Rs 811.4 crore.

With a pre-tax loss of Rs 426 crore, the company spent about 49 paise to get one rupee of sales compared with a 56 paise loss for every rupee earned in 2014. During the last quarter ended December, sales declined 19% to Rs 218.5 crore from a year earlier.

“Increased focus on gross profit margin, unit economics and overall profitability resulted in net revenue and GMV (gross merchandise value) decline in Q4,” the company said in an investor presentation on Thursday.

The five-year-old company’s GMV rose 14% to Rs 1,503 crore during the year from almost 5.4 million orders. GMV includes total sales along with listing fees of third-party vendors that sell products on its marketplace.

India’s ecommerce market will expand fourfold to $103 billion by FY20, according to Goldman Sachs. At this stage, online retailers have to endure operating losses, given the high initial investments and incentives they provide in the form of discounts to attract consumers.

The combined losses of the ‘Big 3’ online companies - Amazon, Flipkart and Snapdeal - swelled to Rs 5,052 crore during FY15 as they hunted for buyers by dangling deep discounts. Several online retailers are now said to be getting more circumspect about offering discounts as they seek to shore up their balance sheets.

“With a good growth trajectory, will continue to improve profitability at a very fast pace, that was set in the last quarter. We are bringing in a very frugal culture and operating like how a good retail offline business should operate,” said Sanjeev Mohanty, who joined Jabong as managing director from Italian fashion brand Benetton over four months ago.

“They should try selling products that are exclusive instead of what is being sold online by other rivals. With H&M and Zara, sales sustainability on western apparel could be an issue,” said Ruchi Sally, director at retail consultancy firm Elargir. “Tight control on marketing can help profitability but will impact sales too.”

Jabong has launched over a dozen global brands such as Dorothy Perkins, G Star Raw, Tom Tailor and Bugatti Shoes exclusively for India, helping it to earn higher margins. Few months ago, British brands Topshop and Topman entered the Indian market through the Jabong platform.

“We are changing the mix to fresh season merchandise instead of old season inventory and at the same time progressively bringing down discounts. We are moving away from loss-making private labels to focus on high margin and growth brands,” Mohanty said, adding that the company is set for high double-digit growth despite a major fire incident in February.

Jabong and rival Myntra, owned by Flipkart, were considered leaders in the fashion category, but Amazon India is gradually getting aggressive. Most lifestyle product makers are either shying away from heavy discounts or giving price-offs for old merchandise, something that goes against Jabong's business model of offering fast fashion or the latest collection.

India’s biggest domestic ecommerce companies Flipkart and Snapdeal are flush with cash as overseas investors in both companies seek a piece of the market that’s set to surge. Amazon India has indicated that it may exceed the $2 billion that CEO Jeff Bezos pledged to spend last year, with sales growing more rapidly than expected. Jabong has raised about $100 million from a consortium of investors including Swedish investment giant AB Kinnevik and Rocket Internet.